People need to eat, even in a recession
Recession can bring with it opportunities as well as threats.
And even if starting up a new business when the economy is shrinking does prove to be a baptism of fire, it could strengthen you in the long run. If you survive, think how well you’ll perform when the good times return.
Here are some of the ways you can withstand a recession when you start a new business.
Sell food
Some goods are a necessity, meaning people will buy them in about the same quantities irrespective of whether their income rises or falls. So businesses that sell essential goods or services generally perform as well in lean times as they do in boom time.
The most obvious necessity is food, being, as it is, pretty much fundamental to our survival.
However, there’s a difference between what you need to eat to survive and the amount of food we in the Western world actually eat. People can and do cut back in less bountiful times.
A food retailer might consequently think differently about how to market its goods in a recession. For example, instead of Two-For-One offers consumers might prefer getting a single item for half the price.
People don’t just cut back in terms of volume. While sales of premium ranges could drop, value ranges might conversely fare better.
However, ‘luxury’ foods aren’t always sacrificed on the alter of belt-tightening. Haagen Dazs ice-cream, for example, sold well during the early 1990s recession because although it was luxurious, it was still affordable to the average person.
Sell affordable ‘luxury’ goods
People do not wish to forgo all pleasure during economic downturns. They will cut back on inessential expenditure, but cherish what remains even more as a result.
This means that businesses which offer slimmed down versions of luxury goods can prosper, as Jim Surguy, senior partner at Harvest Consulting explains: “When times are hard people will search for value, so the response should be to make smaller versions of the same things they always buy – drinks in half-sized bottles, or seeds not plants, or holidays lasting five days instead of seven days.”
Instead of cutting back, people can substitute their luxury goods for cheaper versions. For example, someone might buy some Cadbury’s chocolate from the newsagent instead of going to a premium chocolatier such as Hotel Chocolat. Or they might rent a DVD instead of going to the cinema. Or they might substitute a holiday in the States with a holiday in France.
To sate your customers’ wish for luxury goods in lean times, then, you need to sell them more cheaply. This means you should make them more cost-effectively, by sourcing cheaper materials/ingredients or having a more efficient production process. Or you could just accept tighter profit margins.
Start or buy a funeral parlour or healthcare business
Illness and death are implacable even in the face of recession. Therefore anything to do with healthcare – such as manufacturing, delivering supplies or providing services – and funeral parlours are immune to the effects of high interest rates, high inflation, and tumbling house prices.
Start or buy a debt collection business
Not much explanation needed for this one, where the amount of business you get almost certainly goes up in times of hardship.
Start or buy a legal services business
The same goes for family-law solicitors. The industry as a whole is pretty much immune to a recession (neither crime nor litigation abate in a downturn), but family solicitors are, if anything, likely to bring in more business. Recession is stressful, stress causes friction in marriages – divorce rates go up.
Buy a school
It seems strange to think of a school as a business and pupils as customers. But in a sense they are, so long as you’re talking about independent schools.
And if you own a school you can count on plenty of repeat business, even in a tough economic climate.
“Schools keep their customers for up to seven years,” says Peers Carter, co-owner of a school and partner at STC, the School Transfer Company, which specialises in selling education businesses. “Parents make a strong commitment to their children’s education and do not abandon it or change schools lightly. They will, quite rightly, give up luxuries such as holidays or new cars to keep their children in a good school.
“In the last major recession between 1989 and 1996, most independent schools survived and thrived – indeed there were more independent schools after the recession than before it!”
Start or buy a business in home maintenance
If you have a leak in your roof, are without electricity or have a mice infestation then something must be done. And even if people have non-essential maintenance jobs they’re often loathe to delay them until the economy improves, because the problem can, if left, worsen and ultimately become more expensive to fix.
So, if you’re a plumber, electrician, roofer, or are skilled in another area of home maintenance, then you have less to fear from economic uncertainty than most.
Sell goods or services popular with over-50s
Richard Denny, a business-development adviser, explains this one: “In an uncertain economic climate, the one section of the community that is still growing is the over-fifty marketplace. They have equity in their property, they have savings and they earn a bit more as interest rates rise.
“They are continuing to spend on holidays, on hobbies, on sports and keeping fit, on interests, on lifestyle, on health and diet. So anything in those directions is a very big market.”
Buy a franchise
By no means do franchises always thrive in a downturn. Indeed, some are very much susceptible to recession by dint of the nature of the industry they’re in.
However, in general, an established franchise will stand a better chance than most. Many are old enough to have been around during previous downturns, and since they survived them, they’re in a good position to withstand fresh economic turbulence.
When demand across the economy recedes it’s more likely to be small businesses than experienced franchise chains that suffer. Franchises have the time-honed, streamlined systems and processes to ensure that they’re among the majority of businesses that survive a recession.
